USD Partners LP [USDP] Filings

10-Q 1 usdp-20230930.htm 10-Q USD PARTNERS 9-30-2023 usdp-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36674

USD PARTNERS LP

(Exact Name of Registrant as Specified in Its Charter)


Delaware						30-0831007
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

811 Main Street, Suite 2800

Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): (281) 291-0510

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Units Representing Limited Partner Interests	USDP	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2023, there were 33,774,427 common units outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Statements of Operations	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Cash Flows	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Partners’ Capital	5
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	62

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	63
Item 1A.	Risk Factors	63
Item 6.	Exhibits	65
SIGNATURES		67

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q, or this “Report,” to “USD Partners,” “USDP,” “the Partnership,” “we,” “us,” “our,” or like terms refer to USD Partners LP and its subsidiaries.

Unless the context otherwise requires, all references in this Report to (i) “our general partner” refer to USD Partners GP LLC, a Delaware limited liability company; (ii) “USD” refers to US Development Group, LLC, a Delaware limited liability company, and where the context requires, its subsidiaries; (iii) “USDG” and “our sponsor” refer to USD Group LLC, a Delaware limited liability company and currently the sole direct subsidiary of USD; (iv) “Energy Capital Partners” refers to Energy Capital Partners III, LP and its parallel and co-investment funds and related investment vehicles; and (v) “Goldman Sachs” refers to The Goldman Sachs Group, Inc. and its affiliates.

Cautionary Note Regarding Forward-Looking Statements

This Report includes forward-looking statements, which are statements that frequently use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “projection,” “should,” “strategy,” “target,” “will” and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date on which it is made, and we undertake no obligation to publicly update any forward-looking statement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) our ability to continue as a going concern; (2) the impact of world health events, epidemics and pandemics, such as the novel coronavirus (COVID-19) pandemic; (3) changes in general economic conditions and commodity prices, including as a result of the wars in Ukraine and Gaza and their regional and global ramifications, inflationary pressures, slowing growth or recession or instability of financial institutions; (4) the effects of competition, in particular, by pipelines and other terminal facilities; (5) shut-downs or cutbacks at upstream production facilities, refineries or other related businesses; (6) government regulations regarding oil production, including if the Alberta Government were to resume setting production limits; (7) the supply of, and demand for, terminalling services for crude oil and biofuels; (8) the price and availability of debt and equity financing, whether through capital markets, lending or sale of assets; (9) actions by third parties, including customers, potential customers, construction-related services providers, potential transaction counterparties, our sponsors and our lenders, including with respect to rights and remedies or modifications to or waivers under our credit agreement; (10) our ability to comply with the terms under our credit agreement and to refinance, extend or replace our credit agreement on or prior to the end of the forbearance period on November 17, 2023; (11) our ability to obtain additional sources of capital, improve liquidity through strategic initiatives and maintain sufficient liquidity; (12) our ability to enter into new contracts for uncontracted capacity, to renew expiring contracts and to replace expired contracts; (13) hazards and operating risks that may not be covered fully by insurance; (14) disruptions due to equipment interruption or failure at our facilities or third-party facilities on which our business is dependent; (15) natural disasters, weather-related delays, casualty losses and other matters beyond our control; (16) changes in laws or regulations to which we are subject, including compliance with environmental and operational safety regulations, that may increase our costs or limit our operations; (17) our ability to successfully identify and finance potential acquisitions, development projects and other growth opportunities; and (18) the impact of the expected delisting of our common units as a result of our inability to comply with the New York Stock Exchange listing standards relating to trading

price and market capitalization. For additional factors that may affect our results, see “Risk Factors” and the other information included elsewhere in this Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is available to the public over the Internet at the website of the U.S. Securities and Exchange Commission, or SEC, (www.sec.gov) and at our website (www.usdpartners.com).

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(unaudited; in thousands of US dollars, except per unit amounts)
Revenues
Terminalling services	$	9,785	$	19,345	$	47,888	$	84,872
Terminalling services — related party	740		670		2,186		1,987


Fleet leases — related party	373		912		943		2,737

Fleet services — related party	—		298		171		896
Freight and other reimbursables	5		254		195		514
Freight and other reimbursables — related party	174		—		291		—
Total revenues	11,077		21,479		51,674		91,006
Operating costs
Subcontracted rail services	2,210		2,742		7,818		10,337
Pipeline fees	2,991		5,735		14,298		22,625
Freight and other reimbursables	179		254		486		514
Operating and maintenance	1,179		2,888		3,955		9,464
Operating and maintenance — related party	—		—		—		258
Selling, general and administrative	2,012		2,633		8,770		10,885
Selling, general and administrative — related party	1,781		2,318		5,760		10,207
Impairment of intangible and long-lived assets	—		71,612		—		71,612
Gain on sale of business	(9)		—		(6,211)		—
Depreciation and amortization	1,313		5,758		4,942		17,362
Total operating costs	11,656		93,940		39,818		153,264
Operating income (loss)	(579)		(72,461)		11,856		(62,258)
Interest expense	4,929		3,126		13,849		6,725
Gain associated with derivative instruments	(3,187)		(6,904)		(6,092)		(13,800)
Foreign currency transaction loss	—		152		102		1,942
Other income, net	(77)		(28)		(193)		(55)
Income (loss) before income taxes	(2,244)		(68,807)		4,190		(57,070)
Provision for income taxes	561		546		385		1,005
Net income (loss)	$	(2,805)	$	(69,353)	$	3,805	$	(58,075)
Net income (loss) income attributable to limited partner interests	$	(2,805)	$	(69,353)	$	3,805	$	(56,706)
Net income (loss) income per common unit (basic and diluted)	$	(0.08)	$	(2.08)	$	0.11	$	(1.80)
Weighted average common units outstanding	33,764		33,380		33,697		31,421

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(unaudited; in thousands of US dollars)
Net income (loss)	$	(2,805)	$	(69,353)	$	3,805	$	(58,075)
Other comprehensive loss — foreign currency translation	(1,513)		(3,511)		(244)		(4,705)
Comprehensive income (loss)	$	(4,318)	$	(72,864)	$	3,561	$	(62,780)

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2023		2022
	(unaudited; in thousands of US dollars)
Cash flows from operating activities:
Net income (loss)	$	3,805	$	(58,075)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	4,942		17,362
Gain associated with derivative instruments	(6,092)		(13,800)
Settlement of derivative contracts	1,148		7,029
Unit based compensation expense	2,842		3,703
Gain on sale of business	(6,211)		—
Loss associated with disposal of assets	—		3
Deferred income taxes	(9)		328
Amortization of deferred financing costs	998		899
Impairment of intangible and long-lived assets	—		71,612

Changes in operating assets and liabilities:
Accounts receivable	(118)		4,582
Accounts receivable — related party	(152)		1,688
Prepaid expenses, inventory and other assets	1,463		5,271

Accounts payable and accrued expenses	1,000		(4,399)
Accounts payable and accrued expenses — related party	(715)		(760)
Deferred revenue and other liabilities	(4,081)		(6,824)
Deferred revenue and other liabilities — related party	160		350
Net cash provided by (used in) operating activities	(1,020)		28,969
Cash flows from investing activities:
Additions of property and equipment	(649)		(405)
Reimbursement of capital expenditures from collaborative arrangement	—		1,774
Internal-use software development costs	(55)		—
Net proceeds from the sale of business	32,658		—
Acquisition of Hardisty South entities from Sponsor	—		(75,000)
Net cash provided by (used in) investing activities	31,954		(73,631)
Cash flows from financing activities:
Distributions	(2,154)		(11,446)
Payments for deferred financing costs	(203)		(13)
Payments for ongoing refinancing activities	(1,996)		—
Vested phantom units used for payment of participant taxes	(674)		(1,096)

Proceeds from long-term debt	—		75,000
Repayments of long-term debt	(19,100)		(22,396)

Net cash provided by (used in) financing activities	(24,127)		40,049
Effect of exchange rates on cash	(91)		703
Net change in cash, cash equivalents and restricted cash	6,716		(3,910)
Cash, cash equivalents and restricted cash — beginning of period	5,780		12,717
Cash, cash equivalents and restricted cash — end of period	$	12,496	$	8,807

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
	(unaudited; in thousands of US dollars, except unit amounts)
ASSETS
Current assets
Cash and cash equivalents	$	8,688	$	2,530
Restricted cash	3,808		3,250
Accounts receivable, net	1,704		2,169
Accounts receivable — related party	560		409
Prepaid expenses	5,153		3,188
Assets held for sale	19,136		—

Other current assets	2,757		1,746

Total current assets	41,806		13,292
Property and equipment, net	60,099		106,894
Intangible assets, net	51		3,526

Operating lease right-of-use assets	1,174		1,508
Other non-current assets	1,503		1,556

Total assets	$	104,633	$	126,776

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued expenses	$	4,626	$	3,389
Accounts payable and accrued expenses — related party	436		1,147

Deferred revenue	1,781		3,562
Deferred revenue — related party	125		128
Long-term debt, current portion	195,787		214,092
Operating lease liabilities, current	462		700
Liabilities held for sale	300		—
Other current liabilities	5,494		7,907
Other current liabilities — related party	55		11
Total current liabilities	209,066		230,936




Operating lease liabilities, non-current	712		688
Other non-current liabilities	3,618		7,556
Other non-current liabilities — related party	119		—
Total liabilities	213,515		239,180
Commitments and contingencies
Partners’ capital
Common units (33,774,427 and 33,381,187 outstanding at September 30, 2023 and December 31, 2022, respectively)	(104,497)		(108,263)

Accumulated other comprehensive loss	(4,385)		(4,141)
Total partners’ capital	(108,882)		(112,404)
Total liabilities and partners’ capital	$	104,633	$	126,776

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

THREE MONTHS CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL


	Three Months Ended September 30,
	2023			2022
	Units	Amount		Units	Amount
	(unaudited; in thousands of US dollars, except unit amounts)
Common units
Beginning balance at July 1,	33,758,607	$	(102,630)	33,379,431	$	(29,373)

Common units issued for vested phantom units	15,820	(3)		1,756	(5)

Net loss	—	(2,805)		—	(69,353)
Unit based compensation expense	—	941		—	1,143
Distributions	—	—		—	(4,292)

Ending balance at September 30,	33,774,427	(104,497)		33,381,187	(101,880)























Accumulated other comprehensive loss
Beginning balance at July 1,		(2,872)			(1,372)
Cumulative translation adjustment		(1,513)			(3,511)
Ending balance at September 30,		(4,385)			(4,883)
Total partners’ capital at September 30,		$	(108,882)		$	(106,763)

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

NINE MONTHS CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL


	Nine Months Ended September 30,
	2023			2022
	Units	Amount		Units	Amount
	(unaudited; in thousands of US dollars, except unit amounts)
Common units
Beginning balance at January 1,	33,381,187	$	(108,263)	27,268,878	$	16,355

Common units issued for vested phantom units	393,240	(674)		361,173	(1,096)

Net income (loss)	—	3,805		—	(56,706)
Unit based compensation expense	—	2,789		—	3,497
Distributions	—	(2,154)		—	(11,387)
Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		5,751,136	(52,543)
Ending balance at September 30,	33,774,427	(104,497)		33,381,187	(101,880)















General Partner units
Beginning balance at January 1,	—	—		461,136	5,678
Non-cash contribution to Hardisty South entities from Sponsor prior to acquisition	—	—		—	18,207
Net loss	—	—		—	(1,369)

Distributions	—	—		—	(59)
Acquisition of Hardisty South entities from Sponsor and conversion of General Partner units	—	—		(461,136)	(22,457)
Ending balance at September 30,	—	—		—	—
Accumulated other comprehensive loss
Beginning balance at January 1,		(4,141)			(178)
Cumulative translation adjustment		(244)			(4,705)
Ending balance at September 30,		(4,385)			(4,883)
Total partners’ capital at September 30,		$	(108,882)		$	(106,763)

The accompanying notes are an integral part of these consolidated financial statements.

USD PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

USD Partners LP and its consolidated subsidiaries, collectively referred to herein as we, us, our, the Partnership and USDP, is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group, LLC, or USD, through its wholly-owned subsidiary, USD Group LLC, or USDG. We were formed to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. We generate substantially all of our operating cash flows from multi-year, take-or-pay contracts with primarily investment grade and other high credit quality customers, including major integrated oil companies, refiners and marketers. Our network of crude oil terminals facilitate the transportation of heavy crude oil from Western Canada to key demand centers across North America. Our operations include railcar loading and unloading, storage and blending in onsite tanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. We also provide one of our customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons by rail. We do not generally take ownership of the products that we handle, nor do we receive any payments from our customers based on the value of such products.

A substantial amount of the operating cash flows related to the terminal services that we provide are generated from take-or-pay contracts with minimum monthly commitment fees and, as a result, are not directly related to actual throughput volumes at our crude oil terminals. Throughput volumes at our terminals are primarily influenced by the difference in price between Western Canadian Select, or WCS, and other grades of crude oil, commonly referred to as spreads, rather than absolute price levels. WCS spreads are influenced by several market factors, including the availability of supplies relative to the level of demand from refiners and other end users, the price and availability of alternative grades of crude oil, the availability of takeaway capacity, as well as transportation costs from supply areas to demand centers.

On March 31, 2023, we completed our divestiture of all of the equity interests in our Casper Terminal, which included the Casper Crude to Rail, LLC and CCR Pipeline, LLC entities, for approximately $33 million in cash, subject to customary adjustments. Refer to Note 3. Acquisition and Dispositions — Casper Terminal Divestiture for additional details regarding this disposition. The Casper Terminal was included in our Terminalling Services segment.

Basis of Presentation

Our accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete consolidated financial statements.

In the opinion of our management, our unaudited interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which our management considers necessary to present fairly our financial position as of September 30, 2023, our results of operations for the three and nine months ended September 30, 2023 and 2022, and our cash flows for the nine months ended September 30, 2023 and 2022. We derived our consolidated balance sheet as of December 31, 2022, from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our results of operations for the three and nine months ended September 30, 2023 and 2022 should not be taken as indicative of the results to be expected for the full year due to fluctuations in the supply of and demand for crude oil and biofuels, timing and completion of acquisitions, if any, changes in the fair market value of our derivative instruments and the impact of fluctuations in foreign currency exchange rates. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Going Concern

We evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Our evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued.

In August 2023, we entered into an amendment to our Credit Agreement, pursuant to which, among other things, the lenders agreed to forbear through and including October 10, 2023, from exercising any rights or remedies arising from certain defaults or events of default asserted by the Administrative Agent, which we disputed, or certain prospective defaults or events of default under the Credit Agreement and other loan documents arising from, among other things, any failures to disclose certain events that give or may give rise to a Material Adverse Effect, as defined in the Credit Agreement. In October 2023, we entered into a letter agreement to extend this forbearance through November 3, 2023. On November 1, 2023, we entered into a letter agreement, which among other things, extended the forbearance period and temporarily waives, through November 17, 2023, events of default arising from the non-payment of amounts due on the maturity date on November 2, 2023. Refer to Note 19. Subsequent Events — Credit Agreement — Letter Agreements for more information. The maturity date of our Credit Agreement (as defined below) was November 2, 2023. The lenders under our Credit Agreement agreed to forbear and waive the event of default related to our failure to repay borrowings under the Credit Agreement through November 17, 2023, pursuant to the letter agreement, dated November 1, 2023, described under Note 19. Subseq uent Events.

As a result of the end of such waiver and forbearance period being within 12 months after the date that these financial statements were issued, the amounts due under our Credit Agreement have been included in our going concern assessment. Our ability to continue as a going concern is dependent on the refinancing or the extension of the maturity date of our Credit Agreement. If we are unable to refinance or extend the maturity date of our Credit Agreement by November 17, 2023, we do not currently have sufficient cash on hand or available liquidity to repay the maturing credit facility debt as it becomes due, nor do we expect cash flow from our current operations to provide sufficient funds for such repayment.

In addition, there is uncertainty in our ability to remain in compliance with the covenants contained in our amended Credit Agreement for a period of 12 months after the date these financial statements were issued. We are currently not projected to have sufficient cash on hand or available liquidity to repay the Credit Agreement should the lenders not agree to a forbearance or provide a further waiver or amendment and declare all outstanding indebtedness thereunder to be immediately due and payable.

The conditions described above raise substantial doubt about our ability to continue as a going concern for the next 12 months.

We are currently in discussions with our lenders and other potential capital providers and pursuing plans to refinance or replace our Credit Agreement or extend and amend the current obligations under the Credit Agreement; however, we cannot make assurances that we will be successful in these efforts, or that any refinancing, extension or replacement would be on terms favorable to us. Moreover, our ability to refinance our outstanding indebtedness under, or extend the maturity date of, our Credit Agreement is expected to be negatively impacted to the extent we are unable to renew, extend or replace our customer agreements at the Hardisty and Stroud Terminals or experience further prolonged delays in doing so. As a result of our liquidity position, we may be required to sell assets, including the Stroud Terminal, for less than carrying value to satisfy debt obligations.

Due to the substantial doubt about our ability to continue as a going concern discussed above, as of September 30, 2023, we have recorded a valuation allowance against our deferred tax asset that is associated with our Canadian entities. These consolidated financial statements do not include any other adjustments that might result from the outcome of this uncertainty, nor do they include adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

Continued Listing Standard Notice from New York Stock Exchange

On July 26, 2023, we received a notice from the New York Stock Exchange, or NYSE, that we are not in compliance with the continued listing criteria under Section 802.01C of the NYSE’s Listed Company Manual, or Section 802.01C, because the average closing price of our common units was less than $1.00 over a consecutive 30 trading-day period. Pursuant to Section 802.01C, we have six months from the date of the receipt of the non-compliance notice to cure the deficiency and regain compliance by having a closing price of at least $1.00 per unit on the last trading day of any calendar month during the six-month cure period and an average closing unit price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or by meeting such standards on the last trading day of the cure period. The notification has no immediate effect on the listing of our common units on the NYSE.

Comparative Amounts

We have made certain reclassifications to the amounts reported in the prior year to conform with the current year presentation. None of these reclassifications have an impact on our operating results, cash flows or financial position.

Foreign Currency Translation

We conduct a substantial portion of our operations in Canada, which we account for in the local currency, the Canadian dollar. We translate most Canadian dollar denominated balance sheet accounts into our reporting currency, the U.S. dollar, at the end of period exchange rate, while most accounts in our statement of operations accounts are translated into our reporting currency based on the average exchange rate for each monthly period. Fluctuations in the exchange rates between the Canadian dollar and the U.S. dollar can create variability in the amounts we translate and report in U.S. dollars.

Within these consolidated financial statements, we denote amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.

US Development Group, LLC

USD and its affiliates are engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USD is the indirect owner of our general partner through its direct ownership of USDG and is currently owned by Energy Capital Partners, Goldman Sachs and certain of USD’s management team.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Assets Held For Sale

We classify long-lived assets intended to be sold as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the asset or disposal group; (2) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated; (4) the sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; (5) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

We initially measure a long-lived asset or disposal group that is classified as held for sale at the lower of carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. We assess the fair value of a long-lived asset or disposal group less any

costs to sell each reporting period it remains classified as held for sale and report any subsequent changes as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale. For the three and nine months ended September 30, 2023 and 2022, there were no losses recorded on our held for sale assets.

Upon determining that a long-lived asset or disposal group meets the criteria to be classified as held for sale, we discontinue depreciation and amortization and report long-lived assets and liabilities of the disposal group in the line items “Assets held for sale” and “Liabilities held for sale” in our consolidated balance sheets.

Internal-use Software

We capitalize certain internal-use software costs in accordance with Accounting Standard Codification, or ASC, 350-40, which are included in intangible assets. ASC 350-40 requires assets to be recorded at the cost to develop the asset and requires an intangible asset to be amortized over its useful life and for the useful life to be evaluated every reporting period to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. We currently are amortizing these assets over a useful life of five years in the line item “Depreciation and amortization” in our consolidated statement of operations. Maintenance of and minor upgrades to internal-use software are classified as selling, general, and administrative expenses as incurred.

Recently Adopted Accounting Pronouncements

Liabilities — Supplier Finance Programs (ASU 2022-04)

In September 2022, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2022-04, or ASU 2022-04, which amends Accounting Standards Codification Topic 405 to require that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. In each annual reporting period, the buyer should disclose the key terms of the program, including a description of the payment terms and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. For the obligations that the buyer has confirmed as valid to the finance provider or intermediary the amount outstanding that remains unpaid by the buyer as of the end of the annual period, a description of where those obligations are presented in the balance sheet and a rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid should be disclosed. In each interim reporting period, the buyer should disclose the amount of obligations outstanding that the buyer has confirmed as valid to the finance provider or intermediary as of the end of the interim period. The pronouncement is effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption was permitted.

We adopted all the provisions of ASU 2022-04 on January 1, 2023. Refer to Note 10. Debt for additional details regarding our adoption of ASU 2022-04.

3. ACQUISITIONS AND DISPOSITIONS

Hardisty South Terminal Acquisition

On April 6, 2022, we completed the acquisition of 100% of the entities owning the Hardisty South Terminal assets from USDG, exchanged our sponsor’s economic general partner interest in us for a non-economic general partner interest and eliminated our sponsor’s incentive distribution rights, or IDRs, for a total consideration of $75 million in cash and 5,751,136 common units representing non-cash consideration, that was made effective as of April 1, 2022. The cash portion was funded with borrowings from our Credit Agreement. The Hardisty South Terminal, which commenced operations in January 2019, primarily consists of railcar loading facilities with capacity

of one and one-half 120-railcar unit trains of transloading capacity per day, or approximately 112,500 barrels per day, of takeaway capacity.

We accounted for our acquisition of the Hardisty South Terminal as a business combination under common control, whereby we recognized the acquisition of identifiable assets at historical costs and recast our prior financial statements for all periods presented.

Casper Terminal Divestiture

On March 31, 2023, we completed our divestiture of 100% of the equity interests in our Casper Terminal, which included the Casper Crude to Rail, LLC and CCR Pipeline, LLC entities, for approximately $33.0 million in cash, subject to customary adjustments.

The Casper Terminal entities had a carrying value of $26.8 million at the time of sale. The Casper Terminal was included in our Terminalling services segment. The Casper crude oil terminal, located in Casper, Wyoming, primarily consists of unit train-capable railcar loading capacity in excess of 100,000 barrels per day, six customer-dedicated storage tanks with 900,000 barrels of total capacity and a six-mile, 24-inch diameter pipeline with a direct connection from the Express Pipeline. We recognized a gain of $6.2 million from the sale of the terminal which we recorded as “Gain on sale of business” in our consolidated statement of operations. The gain on sale of business that resulted from the sale of the Casper Terminal was not subject to income tax as the entity is included within our partnership structure. Therefore, no impact was reflected within the “Provision for income taxes” recognized in the nine months ended September 30, 2023 in our consolidated statements of operations.

4. NET INCOME PER LIMITED PARTNER INTEREST

Our net income is attributed to limited partners, in accordance with their respective ownership percentages. For periods prior to the cancellation of the IDRs and conversion of the General Partner units to a non-economic General Partner interest that resulted from the acquisition of the Hardisty South entities that became effective April 1, 2022, we used the two-class method when calculating the net income per unit applicable to limited partners, because we had more than one type of participating securities. For the prior periods, the classes of participating securities included Common Units, General Partner Units and IDRs. Prior to the acquisition, our net earnings were allocated between the limited and general partners in accordance with our partnership agreement. As a result of the Hardisty South Terminal acquisition, the general partner units no longer participate in earnings or distributions, including IDRs.

We determined basic and diluted net income per limited partner unit as set forth in the following tables:


	For the Three Months Ended September 30, 2023
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net loss attributable to limited partner interests in USD Partners LP	$	(2,805)	$	—	$	(2,805)
Less: Distributable earnings (1)	—		—		—
Net loss	$	(2,805)	$	—	$	(2,805)
Weighted average units outstanding (2)	33,764		—		33,764


Net loss per limited partner unit (basic and diluted) (3)	$	(0.08)

(1) There were no distributions payable for the three months ended September 30, 2023. Refer to Note 16. Partners’ Capital for further information.

(2) Represents the weighted average units outstanding for the period.

(3) Our computation of net loss per limited partner unit excludes the effects of 1,418,607 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Three Months Ended September 30, 2022
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net loss attributable to limited partner interests in USD Partners LP	$	(69,353)	$	—	$	(69,353)
Less: Distributable earnings (1)	4,292		—		4,292
Distributions in excess of earnings	$	(73,645)	$	—	$	(73,645)
Weighted average units outstanding (2)	33,380		—		33,380
Distributable earnings per unit (3)	$	0.13
Overdistributed earnings per unit (4)	(2.21)
Net loss per limited partner unit (basic and diluted) (5)	$	(2.08)

(1)Represents the distributions paid for the period based upon the quarterly distribution amount of $0.1235 per unit or $0.494 per unit on an annualized basis for the three months ended September 30, 2022. Amounts presented for each class of units include a proportionate amount of the $169 thousand distributed to holders of the Equity classified Phantom Units pursuant to the distribution equivalent rights granted under the Amended LTIP Plan.

(2)Represents the weighted average units outstanding for the period.

(3)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.

(4)Represents the distributions in excess of earnings divided by the weighted average number of units outstanding.

(5)Our computation of net loss per limited partner unit excludes the effects of 1,368,372 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Nine Months Ended September 30, 2023
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net income attributable to limited partner interests in USD Partners LP	$	3,805	$	—	$	3,805
Less: Distributable earnings (1)	—		—		—
Excess net income	$	3,805	$	—	$	3,805
Weighted average units outstanding (2)	33,697		—		33,697
Distributable earnings per unit (3)	$	—
Underdistributed earnings per unit (4)	0.11
Net income per limited partner unit (basic and diluted) (5)	$	0.11

(1)There were no distributions paid or payable for the nine months ended September 30, 2023. Refer to Note 16. Partners’ Capital for further information.

(2)Represents the weighted average units outstanding for the period.

(3)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.

(4)Represents the additional amount per unit necessary to distribute the excess net income for the period among our limited partners.

(5)Our computation of net income per limited partner unit excludes the effects of 1,418,607 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.


	For the Nine Months Ended September 30, 2022
	Common Units		General Partner Units		Total
	(in thousands, except per unit amounts)
Net loss attributable to general and limited partner interests in USD Partners LP (1)	$	(56,706)	$	(1,369)	$	(58,075)
Less: Distributable earnings (2)	12,217		3		12,220
Distributions in excess of earnings	$	(68,923)	$	(1,372)	$	(70,295)
Weighted average units outstanding (3)	31,421		152		31,573
Distributable earnings per unit (4)	$	0.39
Overdistributed earnings per unit (5)	(2.19)
Net loss per limited partner unit (basic and diluted)(6)	$	(1.80)

(1)Represents net loss allocated to each class of units based on the actual ownership of the Partnership during the period.

(2)Represents the per unit distribution paid of $0.1235 per unit for the three months ended March 31, June 30 and September 30, 2022. Amounts presented for each class of units include a proportionate amount of the $506 thousand distributed to holders of the Equity-classified Phantom Units pursuant to the distribution equivalent rights granted under the Amended LTIP Plan.

(3)Represents the weighted average units outstanding for the period.

(4)Represents the total distributable earnings divided by the weighted average number of units outstanding for the period.

(5)Represents distributions in excess of earnings divided by the weighted average number of units outstanding.

(6)Our computation of loss income per limited partner unit excludes the effects of 1,368,372 equity-classified phantom unit awards outstanding as they were anti-dilutive for the period presented.

5. REVENUES

Disaggregated Revenues

We manage our business in two reportable segments: Terminalling services and Fleet services. Our segments offer different services and are managed accordingly. Our chief operating decision maker, or CODM, regularly reviews financial information about both segments in order to allocate resources and evaluate performance. As such, we have concluded that disaggregating revenue by reporting segments appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 14. Segment Reporting for our disaggregated revenues by segment. Additionally, the below tables summarize the geographic data for our revenues:


	Three Months Ended September 30, 2023
	U.S.		Canada		Total
	(in thousands)
Third party	$	1,380	$	8,410	$	9,790
Related party	$	1,286	$	1	$	1,287


	Three Months Ended September 30, 2022
	U.S.		Canada		Total
	(in thousands)
Third party	$	2,505	$	17,094	$	19,599
Related party	$	1,880	$	—	$	1,880


	Nine Months Ended September 30, 2023
	U.S.		Canada		Total
	(in thousands)
Third party	$	4,994	$	43,089	$	48,083
Related party	$	3,532	$	59	$	3,591


	Nine Months Ended September 30, 2022
	U.S.		Canada		Total
	(in thousands)
Third party	$	15,812	$	69,574	$	85,386
Related party	$	5,620	$	—	$	5,620

Remaining Performance Obligations

The transaction price allocated to the remaining performance obligations associated with our Terminal Service Agreements as of September 30, 2023 are as follows for the periods indicated:


	Three months ending December 31, 2023		2024		2025		2026		2027		Thereafter		Total
	(in thousands)
Terminalling Services (1) (2)	$	9,597	$	37,609	$	26,027	$	24,976	$	21,066	$	75,488	$	194,763

(1)A significant portion of our Terminal Services Agreements are denominated in Canadian dollars. We have converted the remaining performance obligations associated with these Canadian dollar-denominated contracts using the year-to-date average exchange rate of 0.7432 U.S. dollars for each Canadian dollar at September 30, 2023.

(2)Includes fixed monthly minimum commitment fees per contracts and excludes constrained estimates of variable consideration for rate-escalations associated with an index, such as the consumer price index, as well as any incremental revenue associated with volume activity above the minimum volumes set forth within the contracts.

We have applied the practical expedient that allows us to exclude disclosure of performance obligations that are part of a contract that has an expected duration of one year or less.

Deferred Revenue

Our deferred revenue is a form of a contract liability and consists of amounts collected in advance from customers associated with their terminal and fleet services agreements and deferred revenues associated with make-up rights, which will be recognized as revenue when earned pursuant to the terms of our contractual arrangements. We currently recognize substantially all of the amounts we receive for minimum volume commitments as revenue when collected, since breakage associated with these make-up rights is currently approximately 99% based on our expectations around usage of these options. Accordingly, we had $0.1 million and $0.4 million deferred revenue at September 30, 2023 and December 31, 2022, respectively, for estimated breakage associated with the make-up rights options we granted to our customers.

We also have deferred revenue that represents cumulative revenue that has been deferred due to tiered billing provisions. In such arrangements, revenue is recognized using a blended rate based on the billing tiers of the agreement, as the services are consistently provided throughout the duration of the contractual arrangement, which we included in “Other current liabilities” and “Other non-current liabilities” on our consolidated balance sheets.

The following tables present the amounts outstanding on our consolidated balance sheets and changes associated with the balance of our deferred revenue for the nine months ended September 30, 2023 and 2022:


	December 31, 2022		Cash Additions for Customer Prepayments		Balance Sheet Reclassification		Revenue Recognized		September 30, 2023
	(in thousands)
Deferred revenue (1)	$	3,562	$	1,781	$	—	$	(3,562)	$	1,781

Other current liabilities (2)	$	5,681	$	—	$	508	$	(5,160)	$	1,029
Other non-current liabilities (2)	$	3,943	$	166	$	(508)	$	—	$	3,601

(1) Includes deferred revenue of $0.1 million and $0.4 million at September 30, 2023 and December 31, 2022, for estimated breakage associated with the make-up right options we granted our customers as discussed above. For the three months ended September 30, 2023, we recognized $1.7 million of previously deferred revenue.

(2) Includes cumulative revenue that has been deferred due to tiered billing provisions included in certain of our Canadian dollar-denominated contracts, as discussed above. As such, the change in “Other current liabilities” has been decreased by $15 thousand and “Other non-current liabilities” presented has been decreased by $10 thousand due to the impact of the change in the end of period exchange rate between September 30, 2023 and December 31, 2022. For the three months ended September 30, 2023, we recognized $0.6 million of revenue related to contract liabilities included in “Other current liabilities.”


	December 31, 2021		Cash Additions for Customer Prepayments		Balance Sheet Reclassification		Revenue Recognized		September 30, 2022
	(in thousands)
Deferred revenue (1)	$	7,575	$	3,482	$	—	$	(7,575)	$	3,482

Other current liabilities (2)	$	6,755	$	—	$	5,168	$	(4,553)	$	7,370
Other non-current liabilities (2)	$	9,482	$	88	$	(5,168)	$	—	$	4,402

(1) Includes deferred revenue of $0.3 million and $1.4 million at September 30, 2022 and December 31, 2021, for estimated breakage associated with the make-up right options we granted our customers as discussed above. For the three months ended September 30, 2022, we recognized $2.7 million of previously deferred revenue.

(2) Includes cumulative revenue that has been deferred due to tiered billing provisions included in certain of our Canadian dollar-denominated contracts, as discussed above. As such, the change in “Other current liabilities” has been decreased by $512 thousand and “Other non-current liabilities” presented has been decreased by $719 thousand due to the impact of the change in the end of period exchange rate between September 30, 2022 and December 31, 2021. For the three months ended September 30, 2022, we recognized $2.9 million of revenue related to contract liabilities included in “Other current liabilities.”

Deferred Revenue — Fleet Leases

Our deferred revenue also includes advance payments from our customer of our Fleet services business, which will be recognized as Fleet leases revenue when earned pursuant to the terms of our contractual arrangements. We have included $0.1 million at September 30, 2023 and at December 31, 2022, in “Deferred revenue — related party” on our consolidated balance sheets associated with our customer’s prepayment for our fleet lease agreements. Refer to Note 8. Leases for additional discussion of our lease revenues.

Accounts Receivable

The balances of “Accounts receivable, net” and “Accounts receivable - related party” were $6.8 million and $2.1 million as of December 31, 2021, respectively.

6. RESTRICTED CASH

We include in restricted cash amounts representing a cash account for which the use of funds is restricted by a facilities connection agreement among us and Gibson Energy Inc., or Gibson, that we entered into during 2014 in connection with the development of our Hardisty Terminal. The collaborative arrangement is further discussed in Note 11. Collaborative Arrangement.

In addition, we have an indemnity escrow account of $2.0 million included in our restricted cash amounts associated with the divestiture of our Casper Terminal that is required to be held for one year from the March 31, 2023 closing date of the sale of the terminal. Refer to Note 3. Acquisitions and Dispositions for a further discussion of the Casper Terminal divestiture.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within our consolidated balance sheets to the amounts shown in our consolidated statements of cash flows for the specified periods:


	September 30,
	2023		2022
	(in thousands)
Cash and cash equivalents	$	8,688	$	4,766
Restricted cash	3,808		4,041
Total cash, cash equivalents and restricted cash	$	12,496	$	8,807

7. PROPERTY AND EQUIPMENT

Our property and equipment is comprised of the following asset classifications as of the dates indicated:


	September 30, 2023		December 31, 2022		Estimated Useful Lives (Years)
	(in thousands)
Land	$	2,807	$	10,110	N/A
Trackage and facilities	84,018		108,325		10-30
Pipeline	—		12,759		20-30
Equipment	14,541		22,553		3-20

Furniture	63		84		5-10
Total property and equipment	101,429		153,831
Accumulated depreciation	(41,505)		(47,360)
Construction in progress (1)	175		423
Property and equipment, net	$	60,099	$	106,894

(1)The amounts classified as “Construction in progress” are excluded from amounts being depreciated. These amounts represent property that has not been placed into productive service as of the respective consolidated balance sheet date.

Depreciation expense associated with property and equipment totaled $1.3 million and $2.6 million for the three months ended September 30, 2023 and 2022, respectively, and $4.8 million and $7.9 million, for the nine months ended September 30, 2023 and 2022.

Stroud Terminal

During the second quarter of 2023 our board of directors of our general partner approved the sale of the Stroud Terminal and we classified it as held for sale in our consolidated balance sheets. We currently expect that a sale of the terminal could occur in late 2023 or early 2024. The Stroud Terminal is included in our Terminalling Services Segment.

As a result of classifying our Stroud Terminal as held for sale, we evaluated the terminal’s fair value. We measured the fair value of our Stroud Terminal long-lived assets using an income analysis approach. The significant unobservable inputs used in our analysis include the following:

•no capital expenditures for additional terminalling connectivity;

•incremental volumes expected at our Stroud Terminal of approximately 27,500 bpd on an annual basis for terminalling services;

•a weighted average cost of capital of 22%; and

•a capital structure consisting of approximately 45% debt and 55% equity.

The key assumptions listed above were based upon economic and other operational conditions existing at or prior to the May 31, 2023 valuation date. Our weighted average cost of capital is subject to variability and is dependent upon such factors as changes in benchmark rates of interest established by the Federal Open Market Committee of the Federal Reserve Board and other central banking regulatory authorities, as well as perceptions of risk and market uncertainty regarding our business, industry and those of our peers and our underlying capital structure. Each of the above assumptions are likely to change due to economic uncertainty surrounding global and North American energy markets that are highly correlated with crude oil, natural gas and other energy-related commodity prices and other market factors.

Assumptions we make under the income approach include our projections of future financial performance of the Stroud Terminal, which include our ability to enter into contracts with new customers. To the extent that our assumptions vary from what we experience in the future, our projections of future financial performance underlying the fair value derived from the income approach for the Stroud Terminal could yield results that are significantly different from those projected.

As indicated above, our estimate of fair value for the Stroud Terminal required us to use significant unobservable inputs representative of Level 3 fair value measurements, including assumptions related to the future performance of our Stroud Terminal. During the second quarter of 2023, we completed the fair value analysis and determined that the fair value of the Stroud Terminal exceeded its carrying value at May 31, 2023.

We re-evaluated the fair value of our Stroud Terminal at September 30, 2023 and determined that the fair value exceeded the carrying value and we continue to have no identified impairment.

Casper Terminal

In September 2022, we determined that recurring periods where cash flow projections were not met due to adverse market conditions at our Casper Terminal was an event that required us to evaluate our Casper Terminal asset group for impairment.

We measured the fair value of our Casper Terminal asset group by primarily relying on the cost approach. The income approach was considered in the context of our economic obsolescence analysis as part of the application of the cost approach. The sales comparison or market approach was used as the most appropriate methodology to derive the fair value of the land associated with the Casper Terminal asset group. Our estimate of fair value required us to use significant unobservable inputs representative of a Level 3 fair value measurement, including those discussed below.

The significant unobservable inputs used in our cost approach impairment analysis include the following:

1) a range of 5 to 45 years to estimate the valuation useful life of the assets; and

2) a hold factor ranging from 3% to 20% representing estimated appraisal depreciation floors that were used to establish a minimal value for assets remaining in use.

As a result of the impairment analysis discussed above, we determined that the carrying value of the Casper Terminal asset group exceeded the fair value of the Casper Terminal as of September 30, 2022, the date of our evaluation. As a result, we recognized a non-cash impairment loss of $36.0 million for the three and nine months ended September 30, 2022, to write down the property, plant and equipment of the terminal to its fair market value, the charge for which we included in “Impairment of intangible and long-lived assets” within our consolidated statements of operations. The Casper Terminal was included in our Terminalling services segment as reported in our segment results included in Note 14. Segment Reporting. Subsequently, on March 31, 2023, we sold our Casper Terminal as discussed in Note 3 . Acquisit i ons and Dispositions and removed the remaining balances recorded in property and equipment associated with the Casper Terminal.

8. LEASES

Lessee

We have noncancellable operating leases for railcars, buildings, storage tanks, offices, railroad tracks, and land.


	September 30, 2023		December 31, 2022
Weighted-average discount rate	6.3	%	4.1	%
Weighted average remaining lease term in years	5.52 years		5.07 years

Our total lease cost consisted of the following items for the dates indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
	(in thousands)

Operating lease cost		$	405	$	1,375	$	1,058	$	4,280
Short term lease cost		121		131		182		292
Variable lease cost		—		4		7		35
Sublease income		(373)		(1,280)		(943)		(3,842)
Total		$	153	$	230	$	304	$	765

The maturity analysis below presents the undiscounted cash payments we expect to make each period for property that we lease from others under noncancellable operating leases as of September 30, 2023 (in thousands):


2023	$	501
2024	115
2025	114
2026	117
2027	121
Thereafter	384
Total lease payments	$	1,352
Less: imputed interest	(178)
Present value of lease liabilities	$	1,174

Lessor

We serve as an intermediary to assist our customers with obtaining railcars. In connection with our leasing of railcars from third parties, we simultaneously enter into lease agreements with our customers for noncancellable terms that are designed to recover our costs associated with leasing the railcars plus a fee for providing this service. In addition to these leases we also have lease income from storage tanks and lease income from our related party terminal services agreement associated with transloading renewable diesel at our West Colton Terminal that commenced in December 2021. Refer to Note 12. Transactions with Related Parties for additional discussion.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands, except weighted average term)
Lease income (1)	$	1,114	$	2,501	$	3,412	$	7,481
Weighted average remaining lease term in years							3.05

(1)Lease income presented above includes lease income from related parties. Refer to Note 12. Transactions with Related Parties for additional discussion of lease income from a related party. In addition, lease income as discussed above totaling $0.7 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively, and $2.5 million and $4.7 million for the nine months ended September 30, 2023 and 2022, respectively, is included in “Terminalling services” and “Terminalling services — related party” revenues on our consolidated statements of operations.

The maturity analysis below presents the undiscounted future minimum lease payments we expect to receive from customers each period for property they lease from us under noncancellable operating leases as of September 30, 2023 (in thousands):


2023	$	1,131
2024	2,947
2025	2,936
2026	2,687


Total	$	9,701

9. INTANGIBLE ASSETS

The composition, gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows as of the dates indicated:


	September 30, 2023		December 31, 2022
	(in thousands)
Carrying amount:
Customer service agreements	$	—	$	3,832
Other	55		—
Total carrying amount	55		3,832
Accumulated amortization:
Customer service agreements	—		(306)
Other	(4)		—
Total accumulated amortization	(4)		(306)
Total intangible assets, net	$	51	$	3,526

Our current intangible assets at September 30, 2023, originated as internally developed software for internal use. Refer to Note 2. Summary of Significant Accounting Policies — Internal-use Software for further details.

Amortization expense associated with intangible assets totaled $0.1 million for the nine months ended September 30, 2023 and $3.2 million and $9.5 million for the three and nine months ended September 30, 2022, respectively. We had no significant amortization expense for the three months ended September 30, 2023.

Our identifiable intangible assets through December 31, 2022, originated from the acquisition of the Casper Terminal. As previously discussed in Note 7. Property and Equipment, at September 30, 2022 we tested our Casper Terminal asset group for impairment due to recurring periods where cash flow projections were not met due to adverse market conditions at our Casper Terminal, which we determined was a triggering event that required us to

evaluate our Casper Terminal asset group for impairment. Our estimate of fair value required us to use significant unobservable inputs representative of a Level 3 fair value measurement.

We measured the fair value of our Casper Terminal asset group by primarily relying on the cost approach and allocated a portion of that impairment to intangible assets. We determined that the carrying amount of our Casper terminal reporting unit exceeded its fair value at September 30, 2022. Accordingly, we recognized an impairment loss of $35.6 million in our intangible assets and included this charge in “Impairment of intangible and long-lived assets” within our consolidated statements of operations for the three and nine months ended September 30, 2022. At December 31, 2022, we had a remaining intangible asset balance of $3.5 million in our consolidated balance sheet. Subsequently, on March 31, 2023, we sold our Casper Terminal as discussed in Note 3. Acquisitions and Dispositions and removed the remaining balances recorded in our intangible assets associated with the Casper Terminal.

10. DEBT

Credit Agreement

In November 2018, we amended and restated our revolving senior secured credit agreement, which we originally established in October 2014. We refer to the amended and restated senior secured credit agreement executed in November 2018, and as amended in October 2021 and January and August of 2023 as discussed below, as the Credit Agreement and the original senior secured credit agreement as the Previous Credit Agreement. Our Credit Agreement amended and restated in its entirety our Previous Credit Agreement.

In October 2021, we entered into an amendment to our Credit Agreement, with a syndicate of lenders. This amendment extended the maturity date of the agreement by one year. The aggregate borrowing capacity of the facility is $275 million and reflects the resignation of Citibank, N.A. as administrative agent and swing line lender under the facility and the appointment of Bank of Montreal as the successor administrative agent and swing line lender under the facility.

In addition, in January 2023, we executed another amendment. Among other things, this amendment provides us with relief from compliance with our Credit Agreement’s maximum Consolidated Net Leverage Ratio and minimum Consolidated Interest Coverage Ratio. As amended, the maximum Consolidated Leverage Ratio was increased from 4.5x to 5.5x for the first and second quarters of 2023 and 5.25x for the third quarter of 2023, and the minimum Consolidated Interest Coverage Ratio was reduced from 2.5x to 2.25x for the second quarter of 2023 and 2.0x for the third quarter of 2023. Beginning January 31, 2023 and continuing through maturity, our ability to make distributions, other restricted payments and investments will be more limited than prior to closing this amendment if our Consolidated Net Leverage Ratio, pro forma for such distribution, other restricted payment or investment, exceeds 4.5x, or our pro forma liquidity is less than $20 million. This amendment also increased the borrowing spreads under our Credit Agreement to be more consistent with current market rates and replaces LIBOR-based borrowing options with Term SOFR-based borrowing options.

On August 8, 2023 we executed another amendment. Pursuant to this amendment, subject to certain terms and conditions, the lenders agreed to forbear through and including October 10, 2023, from exercising any rights or remedies arising from certain defaults or events of default asserted by the Administrative Agent, which we disputed, or certain prospective defaults or events of default under the Credit Agreement and other loan documents arising from, among other things, any failure to disclose certain events that give or may give rise to a Material Adverse Effect. Pursuant to the amendment, on October 10, 2023, the Borrowers were deemed to have waived any defenses to the defaults or events of default asserted by the Administrative Agent. Among other things, we agreed that we will not make any additional requests for new borrowings or letters of credit, or convert outstanding loans from one type to another, in each case under the Credit Agreement. In addition, among other things, this amendment requires us to provide additional financial and operational reporting to the Administrative Agent and the lenders, and further restricts the ability for us, without the consent of the Administrative Agent and lenders holding at least a majority of outstanding loans under the Credit Agreement, to incur additional indebtedness, to make additional investments or restricted payments, to sell additional assets or to incur growth capital expenditures. In addition, unless otherwise agreed by the Administrative Agent and lenders holding at least a majority of outstanding loans under the Credit

Agreement, we are required to apply 100% of the net cash proceeds from any asset sales to repay borrowings outstanding under the Credit Agreement. Therefore, as of September 30, 2023, we have no available capacity under our Credit Agreement.

Our deferred financing costs from our Credit Agreement are amortized over the remaining term of the Credit Agreement using the straight line method, which approximates the effective interest rate method.

Our Credit Agreement matured on November 2, 2023 and, as described under Note 19. Subsequent Events, the lenders under our Credit Agreement agreed to waive, through November 17, 2023, events of default arising from the non-payment of amounts due on the maturity date. Our Credit Agreement provides us with the ability to request an additional one-year maturity date extension, subject to the satisfaction of certain conditions including consent of the lenders. Our Credit Agreement contains customary representations, warranties, covenants and events of default for facilities of this type.

To the extent we are able to incur borrowings under our Credit Agreement, such borrowings and any issuances of letters of credit are available for working capital, capital expenditures, general partnership purposes and continue the indebtedness outstanding under the Previous Credit Agreement. The Credit Agreement includes an aggregate $20 million sublimit for standby letters of credit and a $20 million sublimit for swingline loans. Obligations under the Credit Agreement are guaranteed by our restricted subsidiaries (as such term is defined therein) and are secured by a first priority lien on our assets and those of our restricted subsidiaries, other than certain excluded assets.

Our long-term debt balances included the following components as of the specified dates:


	September 30, 2023		December 31, 2022
	(in thousands)

Credit Agreement	$	195,900	$	215,000
Less: Deferred financing costs, net	(113)		(908)
Less: Long-term debt, current portion	(195,787)		(214,092)
Total long-term debt, net	$	—	$	—

The weighted average interest rate on our outstanding indebtedness was 9.29% and 6.92% at September 30, 2023 and December 31, 2022, respectively, without consideration to the effect of our derivative contracts. In addition to the interest we incur on our outstanding indebtedness, we paid commitment fees of 0.5% on unused commitments at September 30, 2023, which rate will vary based on our consolidated net leverage ratio, as defined in our Credit Agreement. At September 30, 2023, we were not in compliance with the total leverage ratio and interest coverage covenants set forth in our Credit Agreement. However, we were not considered to be in default with our banks due to the agreed upon forbearance period as discussed in Note 19. Subsequent Events — Credit Agreement — Letter Agreements.

Interest expense associated with our outstanding indebtedness was as follows for the specified periods:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Interest expense on the Credit Agreement	$	4,589	$	2,855	$	12,851	$	5,826

Amortization of deferred financing costs	340		271		998		899
Total interest expense	$	4,929	$	3,126	$	13,849	$	6,725

Subsequent to September 30, 2023, we entered into letter agreements relating to the Credit Agreement. We have incurred $3.1 million for costs associated with the ongoing refinancing process of our Credit Agreement that

has been included in “Prepaid Expenses” on our consolidated balance sheet as of September 30, 2023. Refer to Note 19. Subsequent Events — Credit Agreement — Letter Agreements for more information.

Supplier Financing Agreement

We have agreements with a third party that allows a provider of some of our received services to finance payment obligations from us with a designated third-party financial institution associated with insurance for certain of our terminals. The extended payment terms that we have with this supplier for these arrangements is nine months from the execution of the insurance contract. We are not required to provide collateral to the financial institution.

Our outstanding payment obligation under these arrangements was $205 thousand and $19 thousand at September 30, 2023 and December 31, 2022, respectively, recorded in “Other current liabilities” on our consolidated balance sheets.

11. COLLABORATIVE ARRANGEMENT

We entered into a facilities connection agreement in 2014 with Gibson under which Gibson developed, constructed and operates a pipeline and related facilities connected to our Hardisty Terminal. Gibson’s storage terminal is the exclusive means by which our Hardisty Terminal receives crude oil. Subject to certain limited exceptions regarding manifest train facilities, our Hardisty Terminal is the exclusive means by which crude oil from Gibson’s Hardisty storage terminal may be transported by rail. We remit pipeline fees to Gibson for the transportation of crude oil to our Hardisty Terminal based on a predetermined formula. Pursuant to our arrangement with Gibson, we incurred pipeline fees of $3.0 million and $5.7 million, for the three months ended September 30, 2023 and 2022, respectively, and $14.3 million and $22.6 million for the nine months ended September 30, 2023 and 2022, respectively, which are presented as “Pipeline fees” in our consolidated statements of operations.

12. TRANSACTIONS WITH RELATED PARTIES

Nature of Relationship with Related Parties

USD is engaged in designing, developing, owning and managing large-scale multi-modal logistics centers and other energy-related infrastructure across North America. USD is also the sole owner of USDG and the ultimate parent of our general partner. USD is owned by Energy Capital Partners, Goldman Sachs and certain members of its management.

USDG is the sole owner of our general partner and at September 30, 2023, owns 17,308,226 of our common units representing a 51.2% limited partner interest in us. As of September 30, 2023, a value of up to $10.0 million of these common units were subject to a negative pledge supporting USDG’s revolving line of credit for working capital. USDG also provides us with general and administrative support services necessary for the operation and management of our business.

USD Partners GP LLC, our general partner, pursuant to our partnership agreement, is responsible for our overall governance and operations. However, our general partner has no obligation to, does not intend to and has not implied that it would provide financial support to or fund cash flow deficits of the Partnership.

USD Marketing LLC, or USDM, is a wholly-owned subsidiary of USDG organized to promote contracting for services provided by our terminals and to facilitate the marketing of customer products.

USD Clean Fuels LLC, or USDCF, is a subsidiary of USD organized for the purpose of providing production and logistics solutions to the growing market for clean energy transportation fuels.

Omnibus Agreement

We are party to an omnibus agreement with USD, USDG and certain of their subsidiaries, or the Omnibus Agreement, including our general partner, pursuant to which we obtain and make payments for specified services

provided to us and for out-of-pocket costs incurred on our behalf. We pay USDG, in equal monthly installments, the annual amount USDG estimates will be payable by us during the calendar year for providing services for our benefit. The Omnibus Agreement provides that this amount may be adjusted annually to reflect, among other things, changes in the scope of the general and administrative services provided to us due to a contribution, acquisition or disposition of assets by us or our subsidiaries, or for changes in any law, rule or regulation applicable to us, which affects the cost of providing the general and administrative services. We also reimburse USDG for any out-of-pocket costs and expenses incurred on our behalf in providing general and administrative services to us. This reimbursement is in addition to the amounts we pay to reimburse our general partner and its affiliates for certain costs and expenses incurred on our behalf for managing our business and operations, as required by our partnership agreement.

The total amounts charged to us under the Omnibus Agreement for the three months ended September 30, 2023 and 2022 was $1.8 million and $2.3 million, respectively, and for the nine months ended September 30, 2023 and 2022 was $5.8 million and $6.9 million, respectively, which amounts are included in “Selling, general and administrative — related party” in our consolidated statements of operations. We had a payable balance of $0.3 million and $0.8 million with respect to these costs at September 30, 2023 and December 31, 2022, respectively, included in “Accounts payable and accrued expenses — related party” in our consolidated balance sheets.

USD Services Agreement

Prior to our acquisition of the Hardisty South entities, USD and the Hardisty South entities entered into a services agreement for the provision of services related to the management and operation of transloading assets. Services provided consisted of financial and administrative, information technology, legal, management, human resources, and tax, among other services. The Hardisty South entities incurred $3.2 million pursuant to the agreement for the nine months ended September 30, 2022 included in “Selling, general, and administrative — related party” in our consolidated statements of operations. Upon our acquisition of the Hardisty South entities effective April 1, 2022, this services agreement was canceled and a similar agreement was established with us. As such, there was no associated expense for the three and nine months ended September 30, 2023 and the three months ended September 30, 2022 related to the agreement included in “Selling, general, and administrative — related party” in our consolidated statements of operations.

Marketing Services Agreement — Stroud Terminal

In connection with our purchase of the Stroud Terminal, we entered into a Marketing Services Agreement with USDM, or the Stroud Terminal MSA, in May 2017, whereby we granted USDM the right to market the capacity at the Stroud Terminal in excess of the original capacity of our initial customer in exchange for a nominal per barrel fee. USDM is obligated to fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional throughput. Upon expiration of our contract with the initial Stroud customer in June 2020, the same marketing rights now apply to all throughput at the Stroud Terminal in excess of the throughput necessary for the Stroud Terminal to generate Adjusted EBITDA that is at least equal to the average monthly Adjusted EBITDA derived from the initial Stroud customer during the 12 months prior to expiration. We also granted USDG the right to develop other projects at the Stroud Terminal in exchange for the payment to us of market-based compensation for the use of our property for such development projects. Any such development projects would be wholly-owned by USDG and would be subject to our existing right of first offer, or ROFO, with respect to midstream projects developed by USDG. There were no payments made under the Stroud Terminal MSA during the periods presented in this Report.

Marketing Services Agreement — West Colton Terminal

In June 2021, we entered into a Terminal Services Agreement with USDCF that is supported by a minimum throughput commitment to USDCF from an investment-grade rated, refining customer as well as a performance guaranty from USD. The Terminal Services Agreement provides for the inbound shipment of renewable diesel on rail at our West Colton Terminal and the outbound shipment of the product on tank trucks to local consumers. The Terminal Services Agreement has an initial term of five years and commenced on December 1, 2021. We have

modified our existing West Colton Terminal so that it now has the capability to transload renewable diesel in addition to the ethanol that it has been transloading.

In exchange for the Terminal Services Agreement at our West Colton Terminal with USDCF discussed above, we also entered into a Marketing Services Agreement in June 2021, or the West Colton MSA, with USDCF pursuant to which we agreed to grant USDCF marketing and development rights pertaining to future renewable diesel opportunities associated with the West Colton Terminal in excess of the initial renewable diesel Terminal Services Agreement simultaneously executed in June 2021 between us and USDCF. These rights entitle USDCF to market all additional renewable diesel opportunities at the West Colton Terminal during the initial term of the USDCF agreement, and following the initial term of that agreement, all renewable diesel opportunities at the West Colton Terminal in excess of the throughput necessary to generate Adjusted EBITDA for the West Colton Terminal that is at least equal to the average monthly Adjusted EBITDA derived from the initial USDCF agreement during the 12 months prior to expiration of that agreement’s initial five-year term. Pursuant to the West Colton MSA, USDCF will fund any related capital costs associated with increasing the throughput or efficiency of the terminal to handle additional renewable diesel opportunities. In addition, we granted USDCF the right to develop other renewable diesel projects at the West Colton Terminal in exchange for a per barrel fee covering our associated operating costs. Any such development projects would be wholly-owned by USD and would be subject to the terms and conditions of the ROFO with respect to midstream infrastructure developed by USD. There have been no payments made under the West Colton MSA during the periods presented in this Report.

Related Party Revenue and Deferred Revenue

As previously discussed, we entered into a Terminal Services Agreement at our West Colton Terminal with USDCF that became effective in December 2021. We include amounts received pursuant to the arrangement as revenue in the table below under “Terminalling services — related party” in our consolidated statements of operations.

We also have agreements to provide fleet services for USDM, which includes reimbursement to us for certain out-of-pocket expenses we incur. We received revenue from USDM for the lease of 200 railcars pursuant to the terms of an existing agreement with us, which is included in the table below under “Fleet leases — related party” and “Fleet services — related party” and in our consolidated statements of operations.

Our related party revenues from USD and affiliates are presented below in the following table for the indicated periods:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in thousands)
Terminalling services — related party	$	740	$	670	$	2,186	$	1,987
Fleet leases — related party	373		912		943

USD Partners LP [USDP] Filings
10-Q	[2023-11-07]
10-Q	[2023-08-08]
10-Q	[2023-05-04]
10-K	[2023-03-02]
10-Q	[2022-11-02]
10-Q	[2022-08-05]
10-Q	[2022-05-05]
10-K	[2022-03-03]
10-Q	[2021-11-03]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-03-04]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-07]
10-K	[2020-03-05]
10-Q	[2019-11-07]
10-Q	[2019-08-06]
10-Q	[2019-05-07]
10-K	[2019-03-07]
10-Q	[2018-11-06]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-K	[2018-03-09]
10-Q	[2017-11-08]
10-Q	[2017-08-08]
10-Q	[2017-05-04]
10-K	[2017-03-09]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-03-10]
10-Q	[2015-11-13]
10-Q	[2015-08-12]
10-Q	[2015-05-14]
10-K	[2015-03-31]
10-Q	[2014-11-21]
S-1	[2014-08-29]